UK Touts Single-Source Policy, Outsourcing

Jun. 17, 2013 - 06:11PM
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Efforts to transform the way Britain buys military equipment and services took another step forward last week as the government published an acquisition white paper promising efficiency savings from single-source contracts, and outlined plans for the possible outsourcing of the wider procurement process to industry. (QE ClassCarriers)

LONDON — Efforts to transform the way Britain buys military equipment and services took another step forward last week as the government published an acquisition white paper promising efficiency savings from single-source contracts, and outlined plans for the possible outsourcing of the wider procurement process to industry.

Britain’s Ministry of Defence estimates it can save £200 million (US $313.6 million) a year by putting in place an independent body to oversee single-source contracts awarded to local industry.

A government white paper on defense acquisition reform released June 10 said that it is creating an independent Single Source Regulations Office (SSRO) to ensure the rules are kept up to date and to supervise non-competitive contracts worth about £6 billion per year.

Many of Britain’s largest defense programs are covered by the single-source arrangements, including the Typhoon fighter jet, Queen Elizabeth-class aircraft carriers and Astute-class nuclear submarines.

“We will retain the current profit formula for single-source procurement, which provides the industry with a profit rate comparable to the rest of UK industry, in exchange for greater transparency,” the document states.

Industry executives here contend the MoD has enjoyed full transparency in the past.

“They know how much we earn and what our costs are, so it has never really been an issue. Better incentives should allow us to improve returns while saving the MoD money, so it should be a win-win for both sides,” one executive said.

Several executives here said the big prime contractors, which tend to be most involved in these kinds of deals, have been fully engaged with the government in agreeing to the arrangements.

The rules only apply to UK contracts and not to deals with foreign parties, a fact that irks some in industry here, who wonder why there isn’t a level playing field.

SSRO’s operations will be jointly funded by the government and industry. The organization, known here as a non-departmental public body (NDPB), will sit outside of the MoD.

The decision to form SSRO follows a 2011 review of the rules, known as the Yellow Book, that govern single-source contracts at the MoD. The rules have been in place since 1968, and the MoD reckons they need an update.

Industry executives dispute that, saying updates in terms of pricing and other issues have been regularly agreed to with the MoD.

It’s the latest in a string of acquisition initiatives being pushed through by the Conservative-led coalition government since it came into office in 2010. These include giving front-line commands control of their own equipment budgets and seeking a private contractor to manage the Defence Infrastructure Organisation.

The biggest potential shake-up, handing over management of the Defence Equipment & Support arm of the MoD to a government-owned, contractor-operated (GoCo) entity, also appeared in the white paper.

Creation of the NDPB single-source organization and a GoCo would both require legislation.

Bernard Gray, the MoD’s chief of defense materiel, said that starting the legislative process now means “we will be able to implement the chosen model as quickly as possible, once a decision has been made about the future of DE&S.”

An MoD spokesman said it was hoped the legislation would be passed by Parliament before the end of May 2014, with the NDPB and GoCo, assuming it goes ahead, set up by the end of the year. The GoCo scheme, the brainchild of Gray, is aimed at injecting greater commercial and project management skills into the MoD’s procurement arm.

The government is in the midst of a 12-month assessment phase assisted by US company Jacobs Engineering, comparing the benefits of a GoCo against a reform of the current operations, known as DE&S+.

The GoCo is being touted by the MoD as its preferred option, but analysts and executives question the likelihood of outsourcing gaining government approval.

“I think there is less than a 50 percent chance this will emerge successfully from the 12-month assessment,” the first executive said.

The government paper said it would award a contract to run the £14 billion-a-year procurement and support organization for up to nine years if it opts for the GoCo route.

The plan is for the winning bidder to conduct the work through an operating company in which the MoD would have a special share.